The transition to Futures trading

[cynic]

I trade both breakouts and mean reversion.


Here's some food for thought for all on this thread & IMO an important point about having a decent sized pot to play with.


Ponder Point #1

What's the difference in risk between;

1 contract with a 100 point stop
10 contracts with a 10 point stop
100 contracts with a 1 point stop

(excluding liquidity issues)


Ponder Point #2

Which trade is most likely to be stopped out?


Ponder Point #3

Which trade is most likely to capture a big move?

It's funny you should raise this point at this time. My grail strategy currently has a little over 120 positions of varying sizes open, and I'd definitely agree that the expectancy of my strategy is far easier to achieve with the quiver of many small arrows rather than the single large shaft.

 

[MichaelD]

Very choppy day. Not like the beautiful downtrend earlier this week. One lacklustre long to begin the session and then in and out of shorts. Only one of the trades was pyramided. Probably captured about 40% of the move in total which is less than I like to get, but such is life. Lots of interruptions to my day for not all that fantastic a return.

Now have a small long order sitting and waiting to see what happens next.

 

[kid hustlr]

mayday or something in Europe today pavvy don't think ftse is affected but I know a lot of Europe is shut so maybe expect a quiet open??

 

[pavilion103]

Thanks man

 

[euribored]

Very choppy day. Not like the beautiful downtrend earlier this week. One lacklustre long to begin the session and then in and out of shorts. Only one of the trades was pyramided. Probably captured about 40% of the move in total which is less than I like to get, but such is life. Lots of interruptions to my day for not all that fantastic a return.

Now have a small long order sitting and waiting to see what happens next.

Hi MichaelD,

Been attempting to trade the SPI for a short while now, and following you on this thread. You seem to have a solid method, and so I wanted to ask you a question on you on your entries if you don't mind?

I pretty much follow trend lines, and breaks (à la Straight Line Approach on ET). Going in to today, I couldn't really see a set up that could get me into an early short position, so how are you choosing the initial direction? If I wait until the market tells me, then this week I have been getting in after missing a good chunk, as early trend lines are near vertical. The only way I see to enter is to wait for a retrace, and then sell it on a break of the recent low as confirmation of the continuing down move. But this is not ideal as you are then open to false breaks.

Any input is very welcome, and keep up the good work.

Regards,

 

[MichaelD]

so how are you choosing the initial direction?

I don't.

Basically, I have Buy Stops above market price and Sell Stops below market price.

Whatever gets hit I manage accordingly.

The *secret sauce* that makes my trading work is in the fine details of;
- position sizing
- initial stop management
- trailing stop management
- pyramiding

(and I'm only ever going to give vague hints about those parts of my trading as therein lies my edge)


This is very different to the more conventional methods of risk control as generally demonstrated in this thread which is to bet on a bounce off support/resistance and use a very tight stop to control the loss if the bet is wrong.

I use a very different stop methodology which basically leaves the initial stop quite wide, but is a *tiny* position size compared to what I end up with. The net effect is the same, though - a low risk entry relative to overall trading capital. The bonus to me is that I get to win regardless of whether it turns out to be a mean reversion or a breakout.

The breakout trades are the "spectacular" ones which I have tended to post here. The mean reversion trades just grind out a steady cashflow.


Basically, most traders focus on the setup and the entry. I find these to be the least important part of my methodology.

 

[CanOz]

Basically, most traders focus on the setup and the entry. I find these to be the least important part of my methodology.

Agree, with the caveat that I like to get the best price so I take as little heat as possible....

Also, I'm quite willing to give away my methodology as I feel no one will apply the same as me anyway....you need to have your own way...

Enjoying Australia, what a lucky country!

 

[>Apocalypto<]

One trade today,

Short GLD, nice support break. making a fresh low. sold at the close of the bar with red dot. now price moved down to support and started to bounce.. i got butterflies in my tummy and bailed... not good (worried about money I don't own) that's one's dust now.

WTI... seems like it's trying to bottom but could also set up for another test down.... i have a feeling somethings coming waiting on it atm.

Gold just busted down... any way think my soft thinking being scared is a reason to sit out of more trades tonight.

 

[MichaelD]

I like to get the best price so I take as little heat as possible....

This was something that initially puzzled me when I started posting in this thread (as it was the opposite of what I do) but I now understand and agree.

Since most traders' initial bet is directional, the tighter the stop the better the risk:reward ratio can be.

I skew the risk:reward ratio in my favour in a different way.

 

[Wysiwyg]

I trade both breakouts and mean reversion.


Here's some food for thought for all on this thread & IMO an important point about having a decent sized pot to play with.


Ponder Point #1

What's the difference in risk between;m

1 contract with a 100 point stop

Dollar risk is the same for all three but this one is highly unlikely to be whipsawn allowing space and time for the price to move in our favour. Hard to ensure trade moves in our favour straight off the bat.

10 contracts with a 10 point stop

Dollar risk the same but more likely to be whipsawn out of trade.

100 contracts with a 1 point stop

Dollar risk the same but highly likely to be whipsawn out of trade.

 

[>Apocalypto<]

happy to report, i have turned my bad start into a profit in a week.

not big noting but I'm happy i have been able to come back from over 54% down... could have held my last two shorts on GLD and WTI. i am suffering from over winning from the last two days... so think it's time to have small break till next week. i was very down after the first day's with this acc.... feeling better... sticking to my rules and waiting for decent trades that fit my rules...

GLD is saying short atm will have a look at it at the end of this hours close...

statement attached....

 

[MichaelD]

the expectancy of my strategy is far easier to achieve with the quiver of many small arrows rather than the single large shaft.

Dollar risk the same but highly likely to be whipsawn out of trade.

Allowing a very small initial position with a relatively wide stop coupled with aggressive pyramiding when a trade does go in the desired direction creates a very interesting pattern of trade returns which is both extremely satisfying and which can be very stressful at the same time.

How it trades is:

-> There is a high win-loss ratio. This can be emotionally very gratifying.
-> There are regular large outlier wins. The big moves are captured. Extremely pleasing.
-> The losses tend to linger in the portfolio *but most importantly* they always remain very small in $ value compared to the winners. They're annoying to look at, though.

In contrast, trading with a very tight stop sees:

-> A much lower win-loss ratio. More frustrating emotionally. Getting stopped out happens a lot.
-> Outlier wins are present, but less frequently. Many potential outlier trades are simply cut due to the tight initial stop and so you watch them take off without you. Frustrating.
-> Losses disappear very quickly and are very small. No annoying itches to scratch.

Both methodologies can have a positive expectancy.

Below are my actual March trading results for consideration.
Index start: 5420 Index end: 5372

Note the very pleasant Profit Factor achieved.

Would be most interested in comparing others' results for the same period.

 

[pavilion103]

Not too active this week.

6680 was the trade to hold.

We spoke a bit about it earlier in the week.

Might do charts if I get time.

Interesting notes on a low risk way to capture a move from a pullback after a break out of a range. In this spot holding for a few days can make sense once risk is eliminated.

 

[cynic]

Allowing a very small initial position with a relatively wide stop coupled with aggressive pyramiding when a trade does go in the desired direction creates a very interesting pattern of trade returns which is both extremely satisfying and which can be very stressful at the same time.

How it trades is:

-> There is a high win-loss ratio. This can be emotionally very gratifying.
-> There are regular large outlier wins. The big moves are captured. Extremely pleasing.
-> The losses tend to linger in the portfolio *but most importantly* they always remain very small in $ value compared to the winners. They're annoying to look at, though.

In contrast, trading with a very tight stop sees:

-> A much lower win-loss ratio. More frustrating emotionally. Getting stopped out happens a lot.
-> Outlier wins are present, but less frequently. Many potential outlier trades are simply cut due to the tight initial stop and so you watch them take off without you. Frustrating.
-> Losses disappear very quickly and are very small. No annoying itches to scratch.

Both methodologies can have a positive expectancy.

Below are my actual March trading results for consideration.
Index start: 5420 Index end: 5372
...

Bravo Michael!

Yes! Pyramiding with leverage can produce sensational results provided that risk is well managed!

Just be aware that there are certain logistical risks that can be difficult to manage.

I once had the upsetting experience of being locked into open exposure during a sudden market reversal.
(The circuit breakers triggered and the exchange closed prematurely and did not reopen until the next day).
There was a sizable gap (approx 4-5%) before I was able to close my positions. Needless to say I lost the AUD equivalent of a low six figure sum and lots of sleep on that occasion.
I believe that some clients of MFG had even greater challenges in respect to management of open exposure subsequent to MFG's sudden demise.

I sincerely hope that you never have to contend with such nightmarish events.

Note the very pleasant Profit Factor achieved.

Would be most interested in comparing others' results for the same period.

I could produce statistics for my closed trades for that month, however, given that my trades have durations ranging from minutes to months I doubt that it will provide a meaningful comparison.

For example, the profit factor for my closed April DAX trades is 20.16 whereas for March it is only a measly 1.38!!

 

[pavilion103]

Tonight I've taken a long.

6667
Stop 6659

Not sure if this will keep pushing up but a nice spot on open to take it.

 

[LinRegSlope]

Yes! Pyramiding with leverage can produce sensational results provided that risk is well managed!

This is the biggest issue I have, whether to pyramid out or not (I never pyramid in). My tolerance for losing trades is exceptionally low, so I tend to cut a couple of contracts very early on. Great when the trade doesn't work out, however when it runs you only get to take advantage of part of it which is quite frustrating.

 

[MichaelD]

I'm bowing out for tonight. My head's been in a very bad place for trading all day today. I haven't been able to overcome the effects of the week I've had. I've been wanting to take trades of excessive size in stupid places and it's been a massive battle to just sit on my hands and follow my plan and not wreck things.

Last time I got so cocky the market quickly brought me back down to earth.

Clearly it's time to step away from the screen for a bit and get some perspective back.

Happy trading all. See you next week.

 

[pavilion103]

Take a well earnt rest mate

 

[>Apocalypto<]

Good idea Micheal.

when u feel like that best thing to do is turn the screen off. NFP tonight I think so good night to have a break.

Tonight for me 1 win 1 loss. Gold shaping up for a buy at the end of this hour not taking GLD buy, thinking i will sit out of live trading tonight due to NFPs... might take some demo trades at release.

The GLD loss was a decent ent new low but for wathever reason reversed closed manuel on the second time it failed to go lower with a rally.

WTI Long HL with a small range break.

Balance up to 534.69 now profit of 33.87.

 

[pavilion103]

16.5 points.
Exit 6783.5